Can Masco (MAS) Outperform the Market on Solid Strategies?

On Dec 1, we issued an updated research report on one of the leading homebuilding companies, Masco CorporationMAS.

Initiatives Driving Margins

The company continues to execute well with its strategic initiatives with its third quarter earnings rising 21% year over year driven by strong margins.

Masco’s cost-saving initiatives comprising business consolidations, system implementations, plant closures, branch closures, improvement in the global supply chain and headcount reductions bode well for the company.

These initiatives target company-wide annual savings through reduction of corporate expense and simplification of Masco’s organizational structure. These cost saving initiatives have been driving the company’s margin in the past few quarters. Adjusted operating margin increased 70 basis points (bps) to 14.7% in the third quarter on increased operating leverage and solid cost control.

Masco operates through various divisions with a large number of products. It is one of the leading cabinet manufacturers in the U.S. and holds one of the largest shares in faucets. Its popular brands include KraftMaid and Merillat cabinets, Delta and Hansgrohe faucets, Behr paint, and Milgard windows. The Behr brand is the number one brand in the do-it-yourself market for architectural coatings. The company has been witnessing strong demand for its market leading brands as well.

Hiccups

So far this year, the company’s share price has underperformed the Zacks categorized Building & Construction Products – Miscellaneous market. The stock has gained 11.8% year to date compared with 17.5% growth in the broader market.

Again, about 21% of Masco’s sales are generated outside the U.S. As such the company is subject to the volatility of the currency translation across the globe. In 2015, unfavorable foreign currency translation hurt sales by about $250 million with almost all the foreign currencies deteriorating against the U.S. dollar. Though the negative impact of currency translation has softened in 2016, the impact on sales is still significant.

AAON carries a Zacks Rank #2. Full-year 2016 earnings for the company are expected to rise 21.4%.

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